Burberry Surges in London as Quarterly Sales Top Estimates

By Andrew Roberts -
Jul 10, 2013

Burberry Group Plc (BRBY) rose the most in
almost nine months in London trading after posting quarterly
retail revenue that topped estimates as customers bought more of
its most expensive items in Asia and the Americas.

The shares of the U.K.’s largest luxury-goods maker surged
as much as 8.1 percent, the most since Oct. 11, and were up 3.6
percent to 1,492 pence as of 10:18 a.m. in London. They have
advanced 22 percent this year.

Retail revenue advanced 21 percent to 339 million pounds
($504.7 million) in the three months through June, London-based
Burberry said today. Analysts predicted 316 million pounds
according to the median of nine estimates compiled by Bloomberg
News. Comparable-store sales increased 13 percent, exceeding the
5 percent analysts had anticipated.

“The group has executed well on its strategy,” said
Allegra Perry, a London-based analyst at Cantor Fitzgerald. She
recommends holding Burberry shares. “While we believe there is
a significant margin opportunity given the gap to its larger
luxury peers, we see this as a longer-term story.”

Burberry is widening its retail distribution and expanding
its offer beyond apparel to target demand for its brand in
buoyant economies such as Asia. The maker of $2,795 raincoats,
which began operating its own fragrance and beauty division in
April, expects new stores to boost retail revenue by a low-to-mid single-digit percentage in fiscal 2014, it said today,
repeating an earlier forecast.

Operating Margin

Burberry’s aim this year is to widen “modestly” the
operating margin from last year’s 17.1 percent, it said. LVMH
Moet Hennessy Louis Vuitton SA (MC), the world’s largest luxury goods
company, last year posted an operating margin of 21 percent.
Burberry still expects adjusted profit before tax for the six
months through September to be below last year’s 173 million
pounds, it said.

Outerwear and large leather goods accounted for more than
half the growth, according to Burberry. Men’s accessories and
tailoring outperformed, and the trenchcoat maker sold more of
its higher-priced Prorsum and London lines as a percentage of
sales, it said. Customer traffic increased strongly online,
while visits to the stores were “soft,” Burberry said.

“Spring/summer 2013 was a standout season,” Burberry
Chief Executive Officer Angela Ahrendts said in the statement.
“The macro outlook remains uncertain and we will continue to
focus our investment on profitable high-growth opportunities by
channel, region and product categories.”

Same-store sales advanced at least 10 percent in the
Americas and the Asia Pacific region, led by Hong Kong and
China, Burberry said. Same-store sales in Europe, the Middle
East, India and Africa posted high single-digit growth, the
company said. France and Germany remained “robust,” while
Korea showed “early signs of improvement‘‘, Burberry said.

Global luxury sales will rise 4 percent to 5 percent this
year, excluding currency shifts, Bain & Co. estimates. Growth
will be sustained as booming demand in southeast Asia offsets a
slowdown in China and Europe, according to the consultant.